from the questions-to-ponder dept

You may have heard the story a few weeks ago about how the FCC and FTC teamed up to fine AT&T $105 million for mobile cramming (allowing unauthorized mobile charges for premium -- costly -- SMS, of which AT&T kept 35% of all money made). As the FCC noted:

The Enforcement Bureau launched its investigation after receiving consumer complaints alleging that AT&T customers had been billed with months of unauthorized charges for third-party services that they did not request. In some cases, complaints alleged that AT&T Mobility refused to issue refunds or would only refund one or two months' worth of such charges, leaving consumers on the hook for the rest. Until January 2014, AT&T Mobility included charges for third-party services -- such as monthly subscriptions for ringtones, wallpaper, and text messages providing horoscopes, flirting tips, celebrity gossip, and other information -- on its customers' telephone bills. The charge for each of these types of subscriptions was typically $9.99 per month.

This was the largest fine the FCC has ever given out. Some, quite reasonably, pointed out that it took the FCC (and the FTC) quite a long time to catch up on this, as such practices had been called out for years and years.

However, there was a much more interesting element to this fine, as it relates to the current net neutrality "Title II" fight. Remember, the telcos (including AT&T) are pretty adamant that if broadband is classified under Title II it will be the death of all good things. It will be a huge regulatory burden and companies like AT&T are likely to cease all investment and such. Similarly, AT&T and others insist that there's enough competition in the market to prevent anti-consumer practices, and that Title II simply isn't necessary in such a "competitive" market.

So, um, what authority did the FCC use to fine AT&T this time? Well, buried in the official filing, we see that it was done under Section 201(b) of the Communications Act of 1934. You can see 47 USC 201 and read it for yourself, but it's mostly important to know that 47 USC 201 is Title II. In other words, despite an even more "competitive" mobile market than broadband, the FCC had to break out Title II regulations to protect consumers from a years-long scam in which AT&T profited massively, scamming millions from consumers.

And... notice that AT&T accepted the fine and isn't complaining about it. Nor is it challenging the use of the Title II authority, despite SMS being considered something of a service in "limbo" in which it hasn't been definitively classified under Title II or Title I.

And yet, the mobile world has not collapsed. AT&T and other mobile operators aren't screaming to the heavens about how this use of Title II will chill all investment, create massive problems and lead to the end of all that is beautiful and innovative, as they claim about broadband. Instead, they're basically admitting that they helped out with and profited from this scam for years, and that the FCC needed to make use of this authority to protect the consumers that AT&T did nothing to protect, despite knowing full well what was going on for many, many years.

So, from all this, we sense two things: (1) these big telcos can be nasty scammers, cheating people out of money even when there is competition and (2) Title II is not so horrible after all and can actually be quite helpful (eventually!) in getting the big telcos to eventually stop their scammy practices and pay up...

from the very-good-to-see dept

While the more cynical folks out there have insisted that the tech industry is a happy partner with the intelligence community, the reality has been quite different. If anything, in the past many companies were simply... complacent about the situation, not realizing how important these issues were. That's problematic, but the Snowden revelations have woken up those firms and enabled the privacy and security gurus who work there to finally get the message across that they absolutely need to do more to protect the privacy and security of their users. That's why you see things like Apple's new local encryption by default on iOS8, meaning that even if law enforcement or the intelligence community comes knocking, Apple can't get much of your data off of your device.

“Unlike our competitors, Apple cannot bypass your passcode and therefore cannot access this data,” Apple said on its Web site. “So it’s not technically feasible for us to respond to government warrants for the extraction of this data from devices in their possession running iOS 8.”

“For over three years Android has offered encryption, and keys are not stored off of the device, so they cannot be shared with law enforcement,” said company spokeswoman Niki Christoff. “As part of our next Android release, encryption will be enabled by default out of the box, so you won't even have to think about turning it on.”

Of course, you can expect to see the DOJ pushing for new laws to somehow block this or get backdoor access. It may create a future fight worth watching. In the meantime, though, it's great to see tech companies actually competing on how well they can protect the privacy of their users' data from the prying eyes of law enforcement and intelligence agencies.

from the talking-the-talk dept

FCC boss Tom Wheeler is continuing to talk the talk concerning actually putting in place more meaningful rules to protect consumers from telco/internet gatekeepers. The big question is still whether he'll get around to walking the walk. Last week, he gave a strong speech on the lack of real competition in broadband. And this week, he gave a talk at the big CTIA (mobile operators') trade show in which he didn't do the usual suck-up to the industry that we've come to expect in the past, but suggested that the industry needs to shape up. While it starts out with some rhetoric about how he's there to "aggressively represent the best interests of his client," who he notes is "the American people," he does call out some questionable practices by the carriers, including hinting that the net neutrality / open internet rules may be the tool he uses against them:

Recently, I sent letters to the four national wireless providers, asking them about their network management practices. We are very concerned about the possibility that some customers are being singled out for disparate treatment even though they have paid for the capacity that is being throttled. And we are equally concerned that customers may have been led to purchase devices relying on the
promise of unlimited usage only to discover, after the device purchase, that they are subject to throttling.

I am hard pressed to understand how either practice, much less the two together, could be a reasonable
way to manage a network.

Our Open Internet proceeding will look closely at both the question of what is “reasonable” and the
related subject of how network management practices can be transparent to consumers and edge
providers.

One of the big loopholes of the original rules was that they didn't apply to wireless at all, which was part of the reason why companies like Verizon started focusing more on wireless instead of wired broadband. Wheeler notes that the proposed rules keep it that way, but hints about changing it, given that the landscape is changing:

As evidenced by the growth in this industry over the past decade, mobile wireless broadband is a key
component of that virtuous cycle.... One of the constant themes on the record is how consumers increasingly rely on mobile broadband as an
important pathway to access the Internet. Microsoft, for instance, told the Commission that because we live in what they called a “mobile first”
world, “There is no question that mobile broadband access services must be subject to the same legal
framework as fixed broadband access services.” Thousands of consumers have echoed that sentiment.

The Commission’s previous Open Internet rules distinguished between fixed and mobile, and our
tentative conclusion in this new rulemaking suggested the Commission should maintain the same
approach going forward.
In this proceeding, however, we specifically recognized that there have been significant changes in the
mobile marketplace since 2010.
We sought comment about whether these changes should lead us to revise our treatment of mobile
broadband services.
The basic issue that is raised is whether the old assumptions upon which the 2010 rules were based match
new realities.

It's also nice to see that he's speaking up for competition, and suggests he doesn't believe consolidation is good for consumers:

This industry has always told policy makers, “We’re different, we’re competitive.” But in the last couple of years the FCC and the Department of Justice have had to be poised to intervene
to protect that dynamic.
First it was AT&T’s proposed acquisition of T-Mobile.
Most recently the Assistant Attorney General for Antitrust and I were outspoken in discouraging Sprint’s
potential acquisition of T-Mobile.

The American consumer has been the beneficiary: new pricing and new services that have been spurred
by competition.
I know that achieving scale is good economics, and that there is a natural economic incentive to accrue
ever-expanding scale.
We will continue to be skeptical of efforts to achieve scale through the consolidation of major players.

He further notes that the mobile world shows that when there is more competition, investment follows, which counters the big telco/broadband claims that consolidation and less competition will lead to greater investment.

The mobile industry has proven that competition drives capital investment.
Equally important, you have shown that competition and investment are not mutually exclusive.
In the past 10 years, the mobile industry has invested $260 billion to build competitive infrastructure

And getting back to the issue of net neutrality, he notes that competition alone doesn't appear to be enough to ensure an open internet where the operators aren't picking winners and losers:

One of the great facilitators of competition for online services is the open design of the Internet.
I remember when this industry was united around the walled garden where the only apps that reached the
consumer were those which the carrier approved, usually in return for a payment.
That wasn’t a good environment for innovation, or the expansion of consumer services, or the industry for
that matter.
The fast pace of technology which we have been discussing effectively destroyed those walls.
Once the world went IP it was possible to leap the garden wall and discover the abundance of an open
ecosystem.
And just look at the results!
But it is instructive that the walled garden existed despite multi-carrier competition.
At least in the short run, this suggests that competition does not assure openness.

This is great to see, as it's much more typical of the FCC boss at such events to pander to the audience. Wheeler doesn't do that at all. If anything, this speech is him giving them a pretty big warning shot (he also does this on the issue of spectrum auctions, but this post is getting long enough...).

Again, it's nice (and somewhat refreshing) to see Wheeler saying these kinds of things. In fact, he's been saying a lot of the right things over the past few months. The real question is if the actions will follow the words. Having seen an FCC that has failed to follow through for so many years, it pays to be skeptical until we see actual results. But, as a starting point, saying the right things is better than the opposite.

from the your-surprise-is-somewhat-surprising dept

Roughly two years ago, when fighting AT&T's ham-fisted acquisition attempt of T-Mobile, Sprint lobbyists and lawyers were busy telling anybody who would listen that the United States wireless industry isn't truly competitive unless you've got four distinct companies competing. That's something that United States regulators have generally agreed upon, especially given the massive size and power of AT&T and Verizon Wireless, and their domination of both the retail and special access markets. Fast forward two years after the FCC and DOJ blocked AT&T's attempted acquisition, and those opinions appear to have been justified by T-Mobile's sudden resurgence.

The company has not only become great entertainment via snarky CEO Tweets and amusingly mocking carriers like AT&T at every opportunity, but their price disruption has been a truly welcome thorn in the side of larger carriers. From T-Mobile's free international roaming data offer to their war on long-term contracts, the company is leeching customers from AT&T in real price competition, a rarity for United States telecom markets.

Enter Sprint, who now owned by acquisition-hungry Japanese carrier Softbank, is eager to obliterate all of this progress with a T-Mobile acquisition of their own. Regulators have made it clear for years they want four competitors, and every meeting Sprint and SoftBank have had so far has resulted in regulators clearly expressing doubt at the consumer benefits of such a deal. Consumers too have made it clear they loathe the idea as well, given that Sprint has fallen to last place in customer satisfaction rankings and last place in most LTE network speed and latency tests. As such, it's rather curious to see Sprint and SoftBank executives "surprised" this week by the cold shoulder they continue to get from regulators (Wall Street Journal, reg. required):

Sprint Chairman Masayoshi Son and Chief Executive Dan Hesse, who met with officials at the Justice Department and the Federal Communications Commission in Washington in recent weeks, always knew a deal would be a tough sell, the people said. But the men were surprised by the level of opposition and its very public nature, one of the people said.

They really shouldn't be. Trying to acquire the wireless industry's sweetheart just as they're gaining headlines for being disruptive? Two years after arguing about the sanctity of maintaining four competitors? Sprint has argued that combining with T-Mobile will make a stronger third competitor to AT&T and Verizon Wireless, though telecom consolidation often doesn't work that way, and Sprint has shown little to no ability to mirror T-Mobile's price aggression and consumer-friendly policies (like cell unlocking) in recent years. Though not without problems of its own, the FCC and DOJ will also likely prefer T-Mobile get acquired by someone like Dish in order to retain four distinct competitors. It seems like Sprint might want to save everybody involved a lot of time and money, and for the moment focus on learning to properly run the network they already own.

But here's the thing that I find most fascinating about this: it's a reminder of just how quickly and completely a "dominant" tech firm can almost disappear off the face of the earth. Go back to 2007 (also known as The Time Before The iPhone) and Nokia absolutely and totally dominated the mobile phone market. In fact, I remember making a joke around 2005 or so mocking another company for suggesting that it could pass Nokia in the market (I can't remember which company, but it may have been Samsung) and a telco analyst much wiser than myself scolded me, reminding me how quickly the market can change -- and he was totally correct. Two quick images tell the story. The first, put together by the Guardian using Gartner data, shows how Nokia (via Symbian) basically owned the smartphone market for quite some time. And then its lead disappeared:

Or, if you look at it from a profit share realm by vendor, as Asymco did last year, you get an even more dramatic story, where Nokia's ability to profit from mobile phones went away.

Even its overall lead in selling all kinds of phones (going beyond the smartphones and into cheaper phones around the globe, a market that it absolutely dominated) was lost a bit ago to Samsung. Just a few weeks ago, Mobile Unlocked put together an astounding interactive chart showing overall mobile phone sales quarter by quarter going way back. This static image below doesn't do it justice. Check out the full thing:

No matter how you slice the data, it's undeniable that Nokia absolutely and totally dominated the market. Plenty of people (as noted, myself included) thought that lead was more or less insurmountable. While many may argue otherwise today, at the time it was very, very difficult (unless you were that prescient analyst I talked to) to envision a world in which there was such a major market shift that would take Nokia off its game so totally. And then, along came the iPhone. And Android. And the world changed. And Nokia clearly wasn't ready for it, didn't recognize where the world was heading and was unable to respond in a timely fashion. It tried to shift much later in the game, but it was way, way, way too late.

In fact, it could be argued that its own success was part of the problem. Nokia was heavily invested in Symbian and had committed to following that path. This is actually something that's not uncommon with dominant players. In some ways, they're a victim of being there first. When a disruptive innovation comes along, they can't shift on a dime, and the innovations effectively leapfrog right over them. Yes, you can ride out cash cows for a long time -- and Nokia has done so (as, it appears, has Microsoft...) but eventually the music stops.

I bring this up because we seem to go through this quite often -- with people fretting about certain "dominant" tech firms, and how something has to be done to stop them or they'll have too much power. But, as we see time and time again, it often seems that "something" is done in the form of regular competition and innovation from others, who can come out of nowhere and completely take down a giant in a very, very short period of time.

from the get-over-yourselves dept

FairSearch, the increasingly silly and shrill looking "coalition" of tech companies which have nothing in common other than a visceral hatred for Google (it's led by Microsoft) has so far failed miserably in convincing regulators that Google was an antitrust problem. Now it's filed a new attack on Google in the EU, arguing that its Android mobile strategy is anti-competitive because it gives Android away for free.

“Google is using its Android mobile operating system as a ‘Trojan Horse’ to deceive partners, monopolize the mobile marketplace, and control consumer data,” said Thomas Vinje, Brussels-based counsel to the FairSearch coalition. “We are asking the Commission to move quickly and decisively to protect competition and innovation in this critical market. Failure to act will only embolden Google to repeat its desktop abuses of dominance as consumers increasingly turn to a mobile platform dominated by Google’s Android operating system.”

[....] Google achieved its dominance in the smartphone operating system market by giving Android to device-makers for ‘free.’

What's especially ridiculous here is that Microsoft, who is the major source behind FairSearch, dealt with this exact issue itself back during its antitrust fights, when people ridiculously accused it of the same thing for daring to give out Internet Explorer for "free." The idea that giving away some software for free is somehow anti-competitive is just laughable. That this is now being pushed by a bunch of companies who themselves use the exact same benefits of giving away free software to promote other parts of their business is just the height of cynical exploitation of the political process to try to hamstring a competitor in red tape, rather than competing in the marketplace.

Law Professor James Grimmelman, who is hardly a big Google supporter (he was among those who fought the hardest against the Google Books settlement) properly called this new filing by FairSearch "disgusting." It's a blatantly cynical attempt by Microsoft, Nokia, Expedia, TripAdvisor and Oracle to use a totally bogus legal complaint to just waste a competitor's time. All of those companies rely on free software in some form or another. No one in their right mind argues that offering free software is somehow anti-competitive. It seems that FairSearch has now reached hysterical desperation as it attempts to justify itself.

from the tap-tap-tap dept

I'm still not convinced the FCC really has the mandate to put in place net neutrality rules, but even so, it's quite amazing to watch AT&T try to tap dance around them, while clearly violating both the spirit and the letter of the policies. The latest issue has to do with Apple's Facetime video chat. While earlier rumors that AT&T would charge for using the app proved untrue, it did announce that the app would only be available for those paying for a higher level of service (which may effectively be the same thing). The usual parties quickly raised a stink, highlighting how AT&T appears to be violating the rules:

AT&T has now hit back, claiming that the complaints are "knee jerk" and they're not doing anything wrong.

As far as I can tell, AT&T's defense is two-fold:

It believes that there is a loophole in the net neutrality rules in that it does not apply to preloaded apps, and they can set whatever access rules for such apps that they want:

The FCC’s net neutrality rules do not regulate the availability to customers of applications that are preloaded on phones. Indeed, the rules do not require that providers make available any preloaded apps. Rather, they address whether customers are able to download apps that compete with our voice or video telephony services.

It believes that as long as some other competing apps are available, they can restrict the apps they want to restrict.

AT&T does not restrict customers from downloading any such lawful applications, and there are several video chat apps available in the various app stores serving particular operating systems. (I won’t name any of them for fear that I will be accused by these same groups of discriminating in favor of those apps. But just go to your app store on your device and type “video chat.”) Therefore, there is no net neutrality violation.

That's a very interesting interpretation of these things, but doesn't just create a loophole, it creates a giant vortex through which AT&T could restrict a huge number of apps just by pointing out that other such apps exist -- even if they're awful and no one uses them.

Of course, all of this is why we've argued for nearly a decade that the whole "net neutrality" fight is a red herring, anyway. The telcos are always going to find their own loopholes and ways around the rules (which they helped create anyway). The whole fight over net neutrality is not the problem. It's a symptom of the real problem: a lack of serious competition in the marketplace. Get more competitors out there, and increase the fight over customers, and AT&T can't get away with such moves.

from the important-question dept

With the Apple/Samsung case finishing up, James Allworth, over at HBR, has an excellent post wondering why it matters if one company copies from another? A few years ago, we wrote about a book that pointed out that copying and then innovating on the copies is a perfectly reasonable and important business strategy. Allworth points to a new book (one I've been looking forward to for a while) by Chris Sprigman and Kal Raustiala (who we've quoted numerous times) called The Knockoff Economy: How Imitation Sparks Innovation.

He then takes the lessons of that book and applies it to the Apple/Samsung fight, noting that even if we assume they were imitating each other, that seems to have only encouraged further innovation, not less:

If you go back to the mid-1990s, there was their famous "look and feel" lawsuit against Microsoft. Apple's case there was eerily similar to the one they're running today: "we innovated in creating the graphical user interface; Microsoft copied us; if our competitors simply copy us, it's impossible for us to keep innovating." Apple ended up losing the case.

But it's what happened next that's really fascinating.

Apple didn't stop innovating at all. Instead: they came out with the iMac. Then OS X ("Redmond, start your photocopiers"). Then the iPod. Then the iPhone. And now, most recently, the iPad. Given the underlying reason that Apple has been bringing these cases to court was to enable them to continue to innovate, it's hard not to ask: if copying stops innovation, why didn't Apple stop innovating last time they were copied? Being copied didn't stop or slow their ability to innovate at all. If anything, it only seemed to accelerate it. Apple wasn't able to rest on its laurels; to return to profitability, and to take the mantle they hold today of one of the technology industry's largest companies, they had to innovate as fast as they could.

It's the same story we've been explaining for years. History and tons of studies have shown over and over and over again that competition drives innovation, because innovation is an ongoing process. Thus, when others can copy you, that actually accelerates innovation by giving the original incentives to stay ahead in the marketplace, and develop the next great thing. Research has also shown that it's not as easy as you think to "just copy" because you only see the superficial aspects to copy, rather than having the deeper understanding of what works and what doesn't that a market leader often gains.

In fact, when you understand that, you realize that patents can actually slow down innovation by letting a company rest on its laurels, and not have to continue to rapidly innovate. Other companies can't build on what they did first, and so they don't have the same incentives to continue to advance the market forward. And the Apple/Samsung fight in the market appears to support that.

If Apple ends up winning this case against Samsung — and either stops Samsung from releasing their phones and tablets to the market, or charges them a hefty license fee to do so — does anyone really believe that the market will suddenly become more innovative, or that devices will suddenly become more affordable? Similarly, if Samsung wins, do you really believe that Apple will suddenly slow its aggressive development of the iPhone and iPad? It's certainly not what happened last time they lost one of these cases.

Now, if you're with me so far, then I don't think it's a leap to suggest that having these companies duke it out in court over "who might have copied who" is counterproductive. All these lawsuits flying around suggest that everyone is already copying each other, anyway. A better solution? Let's have these companies solely focused on duking it out in the marketplace — where consumers, not courtrooms, make the decisions about innovation. In such a world, the best defense against copying isn't lawsuits, but rather, to innovate at such a rate that your competition can't copy you fast enough. That, to me, sounds like an ideal situation not just for consumers — but for the real innovators, too.

from the or,-time-to-find-another-carrier dept

One of the main concerns of those who worry about net neutrality is how a network provider might block or charge extra for competing services. For example, telcos who still make a fair bit of money from voice services might not like competing services like Skype. Or... Apple FaceTime. So it's interesting to see a report from 9to5Mac suggesting that AT&T may be planning to charge extra to use FaceTime over cellular. This came out when testing iOS6 and receiving a popup requiring "activation." Here's the screenshot of what 9to5 saw:

This does not absolutely mean that they're going to charge. Currently, FaceTime only works over WiFi, but iOS6 is set to enable it for cellular. It's possible that this popup is just because iOS6 is still in beta, and it's just a generic message for a service that is not yet available. But it's at least raising concerns about the intentions of AT&T, with groups like Free Press already warning that this would violate existing (if contested) FCC rules on net neutrality (which, it should be noted are very, very limited when it comes to mobile services). To be honest, I'm not sure why AT&T would actually go down this path. It's already trying to cap and/or meter mobile bandwidth, so it already has a natural restriction on usage. Furthermore, since the iPhone is now widely available on other platforms, charging extra for FaceTime seems like a perfect strategy for driving iPhone users to other mobile operators.

"Apple has made a clear showing that, in the absence of a preliminary injunction, it is likely to lose substantial market share in the smartphone market and to lose substantial downstream sales of future smartphone purchases and tag-along products," Judge Koh said in Friday's ruling.

First of all, this seems to be yet another admission by Apple that it just can't compete in the marketplace against Samsung. Such a ruling seems to scream out to potential buyers: hey, check out the devices that even Apple admits you'd want over its own. But, more importantly, "losing substantial market share" is what competition is all about. If someone comes out with a better product, then the other company should lose substantial market share. That doesn't deserve an injunction. That harms the market, who clearly -- even by Apple's own admission, apparently -- wants the other product more.

The fact that two phones will compete is no reason to ban a phone. Let them compete. Let the market decide.

Even more bizarre is why an injunction should be issued at all. Following the MercExchange decision, courts are only supposed to issue injunctions in exceptional cases. If it's an issue that can be dealt with by requiring a royalty, then there's no reason to issue an injunction.

Samsung, of course, is appealing this and asking that the injunction be put on hold until that appeal is heard. In the meantime, some are pointing out that, for all of Apple's insistence that Samsung copied the designs of its phone and tablet from Apple, you could easily make the argument that Apple got some inspiration from Samsung as well:

And really, that's the point. Innovation and advancement involve all sorts of copying, but also improvements. It goes back and forth. Attacking one party for copying another misses the point, limits competition and harms consumers. It's too bad the US patent system and the courts now want to aid that process.